PURPOSE: The purpose of this study is to determine, in subjects with type 2 diabetes mellitus currently receiving a sulfonylurea and /or metformin as therapy: (1) Whether glycemic control can be improved, as measured by a decrease of at least 1% in the glycosylated hemoglobin, by the addition of a regimen of pre-meal inhaled insulin (2) The toleration and safety of inhaled insulin therapy and its effects after 3 months, if any, on measures of pulmonary function. METHODS: In total, 60 subjects will participate in this trial, with approximately 6 being evaluated at this site. During this three-month comparative trial, half of the subjects will be randomized to receive an inhaled insulin regimen while the other half will receive an inhaled placebo. All patients will continue taking their oral agent(s). Patients who successfully complete this three-month trial will be eligible for a one-year, open-label protocol extension. Prior to study entry, subjects undergo a screening session, including a history and physical exam, EKG, CXR, and lab studies to verify that the patient is eligible for participation. This is followed by a 4 week baseline lead-in period, during which patients continue their pre-study bid or tid SC insulin regimen. Subjects undergo pulmonary function tests (PFTs), dietary instruction, and home blood glucose monitoring instruction during this time. All patients are provided with a glucose meter and supplies and are required to perform blood glucose checks 4 times/day, to record doses and meter readings, and to document any hypoglycemic or adverse events which occur. At the end of the baseline period, subjects are admitted for a 2 day inpatient session, during which they are instructed in the use of the device and dosing with inhaled insulin. At the end of the admission, subjects are randomized to one of two treatment groups (premeal inhaled insulin plus OHA vs premeal inhaled placebo plus OHA). Randomization is double-blinded and is stratified based on HbA1c.